Loading and Discharging Costs (FIO Terms)

What it does

The loading and discharging cost terms decide which party pays for, and is responsible for, the physical handling of the cargo at each end of the voyage. The common abbreviations express how far that responsibility is pushed onto the charterer: free in and out places loading and discharging on the charterer, and extended forms add stowing and trimming, so that the owner receives freight free of those cargo-handling costs.

The alternative is liner or gross terms, under which the owner arranges and pays for cargo handling as part of the freight. Where the line is drawn affects not only money but responsibility, because the party that controls and pays for stowage may also bear responsibility for how the cargo is handled, which can matter if the cargo or the ship is damaged during the operation.

Commercial effect

These terms are a direct allocation of cargo-handling cost, which at some ports and for some cargoes is substantial. Under free-in-and-out style terms the charterer carries the loading and discharging expense and the freight is correspondingly a pure sea-carriage rate; under liner terms the owner builds the handling cost into a higher freight. The choice therefore feeds straight into how the freight number is read.

Responsibility travels with cost to a significant degree. If the charterer controls and pays for stowage and trimming, it may also answer for bad stowage that damages the cargo, whereas under liner terms more of that responsibility stays with the owner. The terms are thus read alongside the cargo and seaworthiness provisions, because they help decide who is liable when something goes wrong during handling.

Owner's perspective

The owner generally prefers free-in-and-out and extended terms, because they remove the cost and much of the responsibility for cargo handling from its account, leaving the freight as payment for the sea carriage alone. The owner can then quote a cleaner rate and avoid exposure to shore-side handling costs and to claims arising from how the cargo was loaded and stowed.

The owner does watch the responsibility side, because even under free-in-and-out terms questions can arise about the division between cargo handling, which is the charterer's, and matters of seaworthiness and care of cargo, which remain the owner's. Clear wording on who controls and answers for stowage and trimming protects the owner from being drawn into liability for an operation it did not run.

Charterer's perspective

The charterer accepting free-in-and-out terms takes on the cost and organisation of loading and discharging, which it may be well placed to manage if it controls the terminals, but which is a real expense it must build into its own economics. It weighs these terms against liner terms, where the owner handles cargo for a higher freight, choosing whichever fits its control of the shore operation.

With the cost comes responsibility, so the charterer that runs the stowage must take care, since bad stowage or trimming that damages cargo or endangers the ship can rebound on it. The charterer therefore wants the boundary between its cargo-handling role and the owner's seaworthiness and cargo-care duties drawn clearly, to avoid being blamed for matters outside its control.

Negotiation points

• Whether handling is on free-in-and-out (charterer) or liner (owner) terms, and how far the charterer's responsibility extends (stowing, trimming).
• How the chosen basis is reflected in the freight rate.
• Where responsibility for bad stowage sits, given who controls and pays for the operation.
• The boundary between cargo handling and the owner's seaworthiness and cargo-care duties.

Common variations

• Free in and out (FIO), placing loading and discharging on the charterer.
• Free in and out, stowed and trimmed (FIOST), extending to stowage and trimming.
• Liner or gross terms, with the owner arranging and paying for cargo handling.
• A split basis, for example load on liner terms and discharge free out, or vice versa.